In the last week of May 2020, Chinese media has reported on complications in Qihoo 360’s massive private placement. Both Toutiao.com and a Baidu blog platform (Baijiahao) are raising concerns over the finalization of the IPO over the Maso Capital lawsuit in the Cayman Islands.
“On March 7, 2020, Qihoo 360, China's largest Internet and mobile security service provider, announced that the company's private equity issuance plan of approximately US $ 1.5 billion has been approved by Chinese regulators and is about to start financing. This is also the first follow-up financing after Qihoo 360 returned to China's A-share listing in 2018.”, Baidu writes.
“But at the same time, the lawsuit between Qihoo 360 and hedge fund Maso Capital continues. According to reports, the lawsuit originated from the privatization of Qihoo 360's equity on the New York Stock Exchange, and the amount of the lawsuit involved may reach 92 million US dollars. The prolonged litigation has undoubtedly made Qihoo 360's latest round of financing plans a bit hazy. In order to consolidate investor confidence, Qihoo 360 should resolve legal proceedings with Maso Capital as soon as possible to eliminate doubts and pave the way for financing.” (*Google Translated).
Essentially, this is regarding an ongoing case in the Cayman Islands over the real valuation of the share as of the 2016 privatization from the NYSE. We have written about the case before in this blog. Maso Capital and others (represented in a US class action) claim the company undervalued its own share to accumulate revenue. Indeed, the share value soared inexplicably when the company went public in Shanghai shortly after.
What Toutiao and others are saying is quite clear – a $92M lawsuit can foil a $1.5B private placement. Many find it odd that a settlement has yet to be reached through mediation in this case.
The Toutiao article is also questioning whether investor confidence will remain high if the case isn’t resolved; “Qihoo 360 Technology should resolve the lawsuit with Maso Capital as soon as possible before this market full of growth opportunities and huge private equity investment plan is launched. Along with its well-known investment organization Sequoia Capital China and many securities brokers, including Huatai Securities, Haitong Securities, Guosen Securities, Everbright Securities, Huachuang Securities and Dongxing Securities, all face pressure from the capital market. Because if the haze of legal disputes continues to linger and has not been properly resolved, it will be difficult for the above institutions to find experienced investors for this large-scale private equity financing.” (*Google Translated).
COVID-19 may have delayed the conclusion of this case, but the hearings planned for early 2020 will surely be rescheduled soon. How long will the case go on? We’re following closely.